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You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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Why Do We Have To Invest in Stocks?

In one occasion, I once
said that if you are still in doubt with the direction of Jakarta Composite
Index (JCI), especially since the market is still quiet from the sentiment, then
you can just wait outside aka hold the cash, so your portfolio will be safe from
the possibility of a certain negative sentiment within the next two or three months
that could drag down the JCI (thus your stock dropped), but on the other hand you
might miss the opportunity to buy your stocks at good price if it turns out that
the JCI immediately move up. At the end, nobody could predict the market,
right? Especially in the short term like that.

However, what we will
discuss here is not about the JCI.

Now look at the
sentence above once again: If you are in a position of holding a stock, then
you will probably suffer losses if it goes down. But if you decided to hold your
cash, then you can still suffer losses, ie if the stocks rise so consequently you lose some gains that you should earn in
case you actually bought the stock. So whether you decided to hold cash or
buying stocks, it is equally risky. If you hold stocks worth US$ 10,000, for
example, then you could suffer a loss of US$ 1,000 if the stock dropped
10%, not including trading fee.

But if you hold cash
worth US$ 10,000, then you can lose as well! Ie if your stock gained 10% and
you should be earning profit of US$ 1,000, but instead you do not get any
profit because you has decided not to
buy the stock.

So I remember, I often
receive questions which is more or less like this, ‘Dear Sir, I am very
interested to invest in stocks, and I've read your blog since a year ago or two.
But until now I have not open a trading account, because I am afraid of losses.
I do not want to lose any money, sir,
so please advise.’

For me, the above
question sounds like, ‘Dear Sir, I want to be a boxer, but I do not want to be hit. So can you ask my opponent to just stand
up still? So I can punch him repeatedly until he collapsed..’ Well, are you
crazy??

Now listen, ‘loss’ is
already a daily breakfast for stock investors, whoever he or she is including
me, or even Warren Buffett. It is definitely
a lie if some people claimed that they always
make money from stocks without ever suffer a loss. A professional fund manager
who has decades of experience may be able to generate consistent profits from
year to year, but surely there are always stocks that he sells in a loss position,
whether it was because of force majeure, because the JCI was down, or simply
because of wrong decision (in buying or selling stocks, you can’t expect to be
always right), but that does not matter as long as the other stocks move up as
expected.

While for the beginner,
then the story is different: You are still learn how to read company’s financial
statements. You still have many unanswered questions due to lack of experience.
And you still can not control your emotions, still easy to get panic and can
not get away from your phone screen every minute from 9 am to 4 pm to watch at
the movement of stocks that you own (and become upset when your stocks are
dropped, whereas the stocks that you didn’t buy skyrocketed). In such
conditions, you buy stocks, then how will the results? You know the answer: It
is very likely that you will suffer losses, especially if you buy stocks
without sufficient knowledge about the company or even without analysis at all.
And indeed, any investor will almost certainly lose some of his capital in the
first 1 – 2 years. But as long as he willing to survive, learn, and gather the experience, he will be able
to profit in the third or fourth year, and finally he will be able to profit
consistently in the fifth year and beyond.

So if you want to
invest in stock but you ‘do not want to lose’, then go back to your bed, and put
your money under the pillow. Because if you invest in stocks, you will lose. But also keep in mind:
When you keep your money in the bank account, then you may laugh at your ‘foolish’
friends who try to invest in stocks but, after a year, instead of making big
money, he lose so much that he’s not able to walking tall, while your money
remains intact. But after two, three, four, five years.. without you realize,
it turns out that your friend has gained so much from his investment
activities, while the value of your savings has not increased at all, even actually
decreased because of inflation.

Then who’s laughing now???

So why do we have to invest,
in this case by buying stocks? Yes of course, to not become ‘loser’ like the
example above. We have to invest so we can make profit, so our capital will
grow, and even you can be rich someday, and we cannot do that if we kept our
money in the piggy bank. There is nothing to be afraid from suffering losses in
stock. What to be feared is that we
never make a profit and our assets never grow, because we never invest.

So if you are
interested to invest in stocks, then go ahead, open an account and start buying
stocks, do not hesitate anymore. By starting to invest, you may (or will
surely) suffer a loss at the beginning, but on the other hand you will have the
opportunity to generate fantastic profits, and to become a world class investor
someday. While if you just keep watching from outside, then although it seems that
you will never lose any money from the market, but in fact you already suffer a big loss because you will never make any profit.
As an Italian mafioso once said (as I heard from the Mafia II video game on
Playstation), ‘He who takes too much risks will lose everything. But he who
never take risks will achieve nothing.’

And if I may add, ‘And
he who takes risks with careful analysis and wisdom, will achieve everything!’

Original articles was written and published in Indonesian
language in January 15, 2017. Any inquiries? Please contact the author by
email, teguh.idx@gmail.com